Good to Great: Why Some Companies Make the Leap...And Others Don't

by Jim Collins

Stockdale Paradox (“There must be something we can become the best at, and we will find it! We must also confront the brutal facts of what we cannot be the best at, and we will not delude ourselves!”),

THREE CIRCLES OF THE HEDGEHOG CONCEPT

IKIGAI!!!!!!!!!!!

The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at— not what it “wants” to be the best at. The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.

The “best in the world” understanding is a much more severe standard than a core competence. You might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which you could become the best in the world, but at which you have no current competence.

To get insight into the drivers of your economic engine, search for the one denominator (profit per x or, in the social sector, cash flow per x) that has the single greatest impact.

Good-to-great companies set their goals and strategies based on understanding; comparison companies set their goals...

Freedom is only part of the story and half the truth.… That is why I recommend that the Statue of Liberty on the East Coast be supplanted by a Statue of Responsibility on the West Coast.

Lack of planning, lack of accounting, lack of systems, and lack of hiring constraints create friction. Problems surface—with customers, with cash flow, with schedules.

He understood that the purpose of bureaucracy is to compensate for incompetence and lack of discipline—a problem that largely goes away if you have the right people in the first place. Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away, and so forth.

Avoid bureaucracy and hierarchy and instead create a culture of discipline. When you put these two complementary forces together—a culture of discipline with an ethic of entrepreneurship—you get a magical alchemy of superior performance and sustained results.

You can change your plans

through the year, but you never change what you measure yourself against. You are rigorous at the end of the year, adhering exactly to what you said was going to happen. You don’t get a chance to editorialize. You don’t get a chance to adjust and finagle, and decide that you really didn’t intend to do that anyway, and readjust your objectives to make yourself look better. You never just focus on what you’ve accomplished for the year; you focus on what you’ve accomplished relative to exactly what you said you were going to accomplish—no matter how tough the measure. That was a discipline learned at Abbott, and that we carried into Amgen.3

But the beauty of the Abbott system lay not just in its rigor, but in how it used rigor and discipline to enable creativity and entrepreneurship. “Abbott developed a very disciplined organization, but not in a linear way of thinking,” said George Rathmann. “[It] was exemplary at having both financial discipline and the divergent thinking of creative work. We used financial discipline as a way to provide resources for the really creative work.”

Abbott recruited entrepreneurial leaders and gave them freedom to determine the best path to achieving their objectives. On the other hand, individuals had to commit fully to the Abbott system and were held rigorously accountable for their objectives. They had freedom, but freedom within a framework. Abbott instilled the entrepreneur’s zeal for opportunistic flexibility. (“We recognized that planning is priceless, but plans are useless,” said one Abbott executive.)8 But Abbott also had the discipline to say no to opportunities that failed the three circles test. While encouraging wide-ranging innovation within its divisions, Abbott simultaneously maintained fanatical adherence to its Hedgehog Concept of contributing to cost-effective health care.

Build a culture full of people who take disciplined action within the three circles, fanatically consistent with the Hedgehog Concept.

Build a culture around the idea of freedom and responsibility, within a framework. Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities. They will “rinse their cottage cheese.” Don’t confuse a culture of discipline with a tyrannical disciplinarian. Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles. Equally important, create a “stop doing list” and systematically unplug anything extraneous.

when we looked inside the good-to-great companies, we were reminded of the best part of the airline pilot model: freedom and responsibility within the framework of a highly developed system.

The good-to-great companies built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system. They hired self-disciplined people who didn’t need to be managed, and then managed the system, not the people.

Circuit City became to consumer electronics retailing what McDonald’s became to restaurants—not the most exquisite experience, but an enormously consistent one.

In a sense, much of this book is about creating a culture of discipline. It all starts with disciplined people.

The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place. Next we have disciplined thought. You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness. Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept. Finally, we have disciplined action, the primary subject of this chapter. This order is important.

the point is to first get self-disciplined people who engage in very rigorous thinking, who then take disciplined action within the framework of a consistent system designed around the Hedgehog Concept.

disciplined, rigorous, dogged, determined, diligent, precise, fastidious, systematic, methodical, workmanlike, demanding, consistent, focused, accountable, and responsible.

Much of the answer to the question of “good to great” lies in the discipline to do whatever it takes to become the best within carefully selected arenas and then to seek continual improvement from there. It’s really just that simple. And it’s really just that difficult.

Everyone would like to be the best, but most organizations lack the discipline to figure out with egoless clarity what they can be the best at and the will to do whatever it takes to turn that potential into reality.

Reichardt set a clear tone at the top: We’re not going to ask everyone else to suffer while we sit on high. We will start by rinsing our own cottage cheese, right here in the executive suite.

Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force.

“Like so many patients with a heart condition,” wrote a Chrysler executive, “we’d survived surgery several years before only to revert to our unhealthy lifestyle.”

above cases illustrate a pattern we found in every unsustained comparison: a spectacular rise under a tyrannical disciplinarian, followed by an equally spectacular decline when the disciplinarian stepped away, leaving behind no enduring culture of discipline, or when the disciplinarian himself became undisciplined

a spectacular rise under a

tyrannical disciplinarian, followed by an equally spectacular decline when the disciplinarian stepped away, leaving behind no enduring culture of discipline, or when the disciplinarian himself became undis...

and strayed wantonly outside the three circles. Yes, discipline is essential for great results, but disciplined action without disciplined understanding of the three c...

Yes, discipline is essential for great results, but disciplined action without disciplined understanding of the three circles can...

The key point is that every step of diversification and innovation stayed within the three circles.

“Anything that does not fit with our Hedgehog Concept, we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesn’t fit, we don’t do it.

In contrast, we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies. Every comparison either (1) lacked the discipline to understand its three circles or (2) lacked the discipline to stay within the three circles.

we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies.

Every comparison either (1) lacked the discipline ...

three circles or (2) lacked the discipline to stay within...

Few companies have the discipline to discover their Hedgehog Concept, much less the discipline to build consistently within it. They fail to grasp a simple paradox: The more an organization has the discipline to stay within its three circles, the more it will have attractive opportunities for growth. Indeed, a great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection.

The more an organization has the discipline to stay within its three circles, the more it will have attractive opportunities for growth. Indeed, a great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection.

It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-lifetime opportunity” is irrelevant if it doesn’t fit within the three circles.

This notion of fanatical consistency relative to the Hedgehog Concept doesn’t just concern the portfolio of strategic activities. It can relate to the entire way you manage and build an organization.

idea of aligning worker interests with management and shareholder interests through an egalitarian meritocracy largely devoid of class distinctions.

Nucor took extraordinary steps to keep at bay the class distinctions that eventually encroach on most organizations. All 7,000 employees’ names appeared in the annual report, not just officers’ and executives’.

All 7,000 employees’ names appeared in the annual report, not just officers’ and executives’.58 Everyone except safety supervisors and visitors wore the same color hard hats.

Nucor responded by organizing a series of forums to address the point that your status and authority in Nucor come from your leadership capabilities, not your position. If you don’t like it—if you really feel you need that class distinction—well, then, Nucor is just not the right place for you.59

point that your status and authority in Nucor come from your leadership capabilities, not your position.

Bethlehem did not decline in the 1970s and 1980s primarily because of imports or technology—Bethlehem declined first and foremost because it was a culture wherein people focused their efforts on negotiating the nuances of an intricate social hierarchy, not on customers, competitors, or changes in the external world.

Call them a bit fanatical if you want, but to create great results requires a nearly fanatical dedication to the idea of consistency within the Hedgehog Concept.